Washington Prime Group: Let Us Keep The Discussion Simple

Summary

• Washington Prime Group is clearly priced for a financial disaster.
• The onset of online ordering combined with the retail washout has confused the market.
• The company appears to have a lot of decent properties as well as sufficient financial flexibility.
• Management needs to talk about the limits of the ability of second tier assets to cause havoc.
• After a lot of false predictions, the bottom or peak of bankruptcies could finally pass.  That would give Washington Prime Group more breathing room.
• This idea was discussed in more depth with members of my private investing community, Oil & Gas Value Research. Start your free trial today »

For a long time, the dispute over the future of Washington Prime Group (WPG) has centered on the cost and durability of renovations. There has long been a fear that all the challenges would pile up at one time and exhaust the company resources. Then of course, bankruptcy (or at least no income distributions) would result from an assumed lack of management creativity. Washington Prime Group management has not been sitting still and the challenges ahead will probably arrive in manageable groups over time.

More important, the unit price now discounts a distribution cut. However once this company gets past the current hurdles, at some point, the turnaround could be very significant. Cash flow and the balance sheet are doing OK. Maybe progress is not to the liking of some that want it fixed in a year or two. But the latest market price clearly anticipates a recovery of several years. Even that pace could provide a nice annual return from current levels.

Of course the effect of online sales has been overexaggerated for some time. Retail has been washing out the weaker competitors for some time. This time the downward spiral has lasted longer than expected. That has led to speculation that Amazon (AMZN) would take over the industry by a few with overactive imaginations. Online orders are rapidly growing. But those orders often need an old-fashioned brick-and-mortar associated business. Online is simply another way to place a sales order for many businesses. The sales still needs to be made by the business (or earned). Often that process takes more than a computer or smartphone.

As a result, the continuing upgrades should add to cash flow as upgrade projects are completed. At some point, the current load of cash necessary for those upgrade projects will decline so that the distribution becomes more

Analyst’s Disclosure:I am/we are long WPG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: I am not an investment advisor and this is not a recommendation to buy or sell a security. Investors are recommended to read all of the company's filings and press releases as well as do their own research to determine if the company fits their own investment objectives and risk portfolios.